Month: February 2021

Background

Many international organizations, such as the OECD, European Council and European Commission, are driving changes as to how businesses operate, with a focus on substance.  The international arena is changing, and with the implementation of Base Erosion and Profit Shifting legislation (BEPS) measures, it is becoming increasingly important to demonstrate real substance and genuine activity. Emphasis is placed on the requirement for an operation to have substance in the country or countries where activities are carried out.

Within international tax planning, substance has become an important consideration when setting up a new corporate structure and/or when restructuring an existing corporate structure.

Substance Considerations in Malta

There are no specific economic substance rules in Malta, but there are a number of recommendations that you should consider when setting up a company, to ensure that the company will remain tax resident in Malta.

• Members of the board of directors – a minimum 50% of the board members should be Maltese resident;
• The decisions of the board of directors should be taken in Malta and the minutes recorded locally through regular board meetings;
• Creation of economic substance in Malta, by renting an office and employing personnel.

Factors that Assist in Establishing Substance in Malta

There are a number of factors that assist companies to meet the recommended substance requirements in Malta:

• There is a large, well-educated pool of English speaking individuals available for employment. In recent years, in particular, there has also been an increase in affordable flexible working spaces.
• Malta’s geographical location makes it an ideal jurisdiction, as a base to travel to Europe and further afield.
• There are several financial assistance packages available to companies that set-up ‘real’ operations in Malta. A number of benefits relate to tax credits whilst other programmes reimburse successful applicants with up to 40% of their capital expenditure.

Benefits Available to Tax Resident Maltese Companies

Companies that are tax resident in Malta benefit from Malta’s full imputation system of taxation that allows generous unilateral relief and tax refunds.

• Companies operating in Malta are subject to a corporate tax rate of 35%.  However, non-Maltese resident shareholders enjoy low effective rates of Maltese tax, as Malta’s full imputation system of taxation allows generous unilateral relief and tax refunds:

• Active income – in most instances shareholders can apply for a tax refund of 6/7ths of the tax paid by the company on the active profits used to pay a dividend. This results in an effective Maltese tax rate of 5% on active income.
• Passive income – in the case of passive interest and royalties, shareholders can apply for a tax refund of 5/7ths of the tax paid by the company on the passive income used to pay a dividend. This results in an effective Maltese tax rate of 10% on passive income.

• Holding companies – the dividends and capital gains derived from participating holdings are not subject to corporate tax in Malta.
• There is no withholding tax payable on dividends.
• Advance tax rulings can be obtained.

Summary

Meeting the substance requirements increases costs for a company, but the potential risk of being challenged by the tax authorities, for a lack of substance, would definitely be far more costly and onerous, for the company to deal with.

How Can Dixcart  Help and the Dixcart Business Centre in Malta

Dixcart Management Malta Limited provides a comprehensive range of incorporation, secretarial and management services for companies registered in Malta, including companies and international companies that are managed through the Dixcart Malta office. 

Dixcart Malta has a Business Centre within our office building, and this Business Centre offers serviced offices and a productive work environment. It can be a cost-effective option for organisations with international interests, wishing to operate from Malta.

The Dixcart Business Centre is located in the prime area of Ta’Xbiex, close to the capital, Valletta. The building is iconic and has been faithfully restored to retain its boat like shape. It incorporates a delightful roof terrace and a unique and memorable bespoke chandelier in the reception area. An entire floor is dedicated to serviced offices. There are nine serviced offices in total, accommodating between one and nine people, there is a kitchen and a boardroom is available for meetings.

Additional Information

If you would like further information regarding companies and substance in Malta, please speak to Jonathan Vassallo: advice.malta@dixcart.com, at the Dixcart office in Malta or to your usual Dixcart contact.

There are several advantages for using corporate structures, especially those registered in financial hubs such as the Isle of Man.

They can be used to help mitigate taxes, hold luxury assets, hold investment portfolios, or as part of appropriate succession planning (something Covid-19 has been a particular catalyst of).

Isle of Man companies benefit from a 0% standard rate of corporate income tax, 0% stamp duty, 0% capital gains tax and no annual filing of accounts for private companies.  

What can you do with an Isle of Man Corporate Structure?

• Own assets such as ships, aircraft and works of art.
• Hold UK or foreign property.
• Hold investment portfolios and participations in other companies. This is due to the zero rate of tax on such activities and where withholding taxes on dividend income from such companies may not apply.
• Hold intellectual property.
• Act as an employer for international workers.
• Receive international income, commissions, and royalties.
• Be part of business structuring and re-structuring.
• Convert immovable assets, such as land, into movable assets, such as shares.
• Incorporate as part of succession planning and asset protection.
• Incorporate as part of tax planning.
• Isle of Man companies wishing to borrow money from banks benefit from being in a well-regulated jurisdiction with a public register of mortgages and other charges.

Formation of Companies in the Isle of Man

Isle of Man companies can be formed and regulated under two separate Acts: the Isle of Man Companies Act 1931 and the Isle of Man Companies Act 2006. More information can be provided on request.

Dixcart in the Isle of Man can provide full management and control of companies, as well as offering advice regarding the statutory obligations for companies incorporated in the Isle of Man and compliance with substance rules requirements. 

The Isle of Man is home to businesses operating in a wide variety of sectors.  The Manx Government has actively encouraged the financial sector. Consequently, the island is extremely well served by international service providers, fully licensed and regulated banks, and insurance companies.

Dixcart provides a comprehensive incorporation service in the Isle of Man. We initiate the organisation and incorporation of companies in many locations around the world and can provide ongoing management and secretarial services to those companies. Dixcart managed companies are established with a complete corporate organisation. This includes the maintenance of statutory records, preparation and completion of financial statements and full documentation relative to the operation of the company. Dixcart can also assist with serviced office and support facilities for clients requiring a physical presence on the island. 

We have a strong network of contacts within the wider professional and commercial sectors, both on and off the island, and can introduce businesses to relevant individuals where appropriate.

If you require additional information regarding this subject, please contact David Walsh in the Isle of Man office: advice.iom@dixcart.com.

Dixcart Management (IOM) Limited is licensed by the Isle of Man Financial Services Authority

This Article identifies three important trends that need to be considered by companies operating internationally:

• Tax structuring and the increasing emphasis on transparency and compliance
• Global technologies and emerging markets
• Increasing importance of the flow of information

Each of these has a significant impact on the most appropriate corporate structure to achieve long term goals.  

Tax Structuring: Tax Transparency, Compliance and Social Responsibility

Changes in the law and public opinion in recent years, have made companies recognise that their tax affairs need to be, not only transparent and compliant, but also that they need to be seen to be responsible and to be paying a ‘fair’ amount of tax.

The United Nation’s Sustainable Development Goals (SDGs) were detailed in 2012, and consist of 17 goals that focus on economic growth, social development and environmental protection for countries and their populations. These goals require significant investment and the implementation of effective tax systems to generate the resources needed. Developing countries are being encouraged to reduce tax leakage and to direct tax revenue gains towards those most in need.

International tax cooperation and enhanced exchange of information, under the automatic exchange of information standards developed by the OECD and the G20, are additional measures designed to reduce tax evasion and under reporting of tax revenue.

The move to regulate fiscal behaviour is ongoing. International government organisations and domestic tax authorities have issued rules and legislation to curb tax evasion. For example, BEPS (OECD), ATAD (EU), and a large number of institutions and regulatory bodies are putting measures in place and re-affirming this approach.

Rules on mandatory reporting of certain tax transactions was adopted by the Economic and Financial Accounts Council (ECOFIN) of the European Commission in 2018, and exchange of this information by all member states of the EU, commenced in October 2020. 

The priority for professional advisers, such as Dixcart, continues to be to  help minimise a company’s tax cost whilst at the same time ensuring full compliance with laws and regulations relating to the company’s tax affairs.

Global Technologies and Emerging Markets

Innovation has become increasingly global due to the rate and variety of technological advances. Globalisation has led to  tasks that were performed at a single location within one country, being spread across different locations and countries.

The advantages include; carrying out the work where the best expertise exists, lower costs, and potentially mitigating risk by using alternative centres for production and/or service provision.

Internationally, China and India are now major sources of global demand, each with distinct consumer needs. In addition, both countries  are becoming sources of talent for developing new products and processes.

On the customer side, many organisations have been making efforts to move faster, and make more decisions locally. Simultaneously there have been opportunities to re-assess functions such as product development and R&D, relocate them, possibly across several countries, and integrate them across the world.

The world today is far more integrated than ever before but the rising friction between China and the US could weaken this. Covid-19 has not helped either.  The pandemic has made countries inward looking, and the demand for self-sufficiency has risen especially with regard to products relevant to health.  Hopefully, this will be a momentary ‘blip’ as the costs of deglobalisation could be high.

 Increasing Importance of the Flow of Information

The digital revolution and remote working, which has accelerated significantly in 2020 and 2021 due to Covid-19, mean that organisations need to place great emphasis on the efficient flow of information, and this increases the need to keep employees happy and engaged. Each employee needs to be enabled to think and communicate effectively.

Communication and collaboration are now far more important and increasingly employees are asked for their input and are involved in helping an organisation move forward, in the right direction.

Increased accountability is now expected across the employee spectrum and there is a deeper appreciation that communication and organisational structure is central to a businesses’ success, as well as to its culture and values.

Summary and Additional Information

If you would like to discuss any of the matters raised in this Information Note, or have any other questions, please contact Laurence Binge at: advice@dixcart.com.

The Team and Activity

Each of the ten Dixcart offices has a team of professional advisers with expertise in the area of; corporate structuring, establishment and management.

Laurence Binge from the UK office and Clive Azzopardi from the Dixcart office in Malta are two of the team members we are introducing to you today.

Services Available across the offices

The Dixcart Group has been providing corporate services for almost 50 years.

Dixcart has extensive expertise in advising both private and institutional clients – helping them to organise their affairs, to achieve their corporate objectives in a compliant manner. Frequently this will entail using companies, trusts and foundations in one or more jurisdiction.

Acting as professional advisers and Corporate Service Providers, we regularly incorporate companies in the jurisdictions where we have offices: Cyprus, Guernsey, Isle of Man, Malta, Nevis, Portugal (mainland and Madeira), South Africa, Switzerland, and the UK. We can also assist in coordinating the establishment of companies in other jurisdictions, through our network of contacts.

Dixcart not only establishes the companies but also provides a comprehensive range of company management, advisory and compliance services, including:

• Day to day administration and company secretarial services
• Director services
• Registered office and agent services
• Tax compliance services
• Accountancy services
• Dealing with transactions, for example, all aspects of acquisitions and disposals

Introduction to Laurence Binge and to Clive Azzopardi

Laurence Binge has worked for the Dixcart Group for almost thirty years and is a Chartered Accountant (England and Wales). He was appointed a Director of Dixcart International Limited in: 1995.  He works at the Dixcart office in the UK.

Clive Azzopardi joined the Dixcart office in Malta in 2015 and was appointed a Director in 2018. He is a member of the Association of Chartered Certified Accountants, the Malta Institute of Management, and the Malta Institute of Accountants

Laurence Binge – laurence.binge@dixcart.com

Laurence Binge qualified as a Chartered Accountant in 1985. Before joining the Dixcart Group in 1992, he spent six years in general practice.

Over the years, Laurence has become a trusted adviser on taxation, corporate governance, domicile, residence and family office issues to a number of international entrepreneurs and their families. He believes you should never let the tax tail wag the dog. The most important thing is to have the right structure in place to make a business work. If you are not in the right place at the right time, with the right team, there may well be no profits to worry about taxing.

Laurence offers extensive expertise in relation to corporate structures, in particular UK Holding Companies. He is fully conversant with the opportunities available through the UK’s outward looking approach post-Brexit and has a high level of knowledge regarding international taxation issues.

Laurence is on the Board of a number of client companies, where his general commercial and tax knowledge is highly valued. He is a Director on a dozen hospitality related companies and, through Dixcart International Limited, provides UK Director services to several clients.

During his time at Dixcart, Laurence has assisted with the establishment and management of a number of the Dixcart offices, particularly Malta and the Isle of Man. He frequently visits/liaises with all of the offices across the Group, and, when able, often travels – particularly to India and South Africa, where many of his current clients are based.

Clive Azzopardi – clive.azzopardi@dixcart.com

Clive joined the Dixcart Malta office in November 2015. He was appointed Head of Client Relationships at Dixcart Management Malta Limited in January 2017, and a Director in 2018. His role is to manage and coordinate the different teams in the Accounts Department, to deepen the relationships with existing clients and to oversee the day to day operations of the company.

Clive is an expert regarding Malta companies, the tax efficiencies that they offer, and the circumstances when they are most appropriate to use, in an international context. Since June 2020, he has been a Governor on the Finance Malta’s Board of Governors. Finance Malta is a non-profit, public-private initiative, set up to promote Malta as an international business and financial centre within, as well as outside, Malta.

Dixcart Management Malta Limited provides complete management and support services for companies incorporated in Malta, and with Clive’s experience in overseeing the accounting management of the Malta office, he is able to assist clients in a similar capacity. This includes full accounting support, secretarial support, preparation of financial statement and fulfilling the tax compliance obligations that companies must meet.

He is a member of the Association of Chartered Certified Accountants, the Malta Institute of Management and Malta Institute of Accountants. Before joining Dixcart, Clive gained nine years of experience in the financial services sector working at two different corporate service providers in Malta.